Federal and State Prosecutors Begin Cracking Down on No-Fault Fraud

In February 2012, the U.S. Attorney for the Southern District of New York unsealed an indictment against more than 30 individuals — including doctors and lawyers — accused of defrauding New York’s “no-fault” auto insurance statute. The Federal Government estimated that over $113 million was lost in the scheme.

Through this indictment, New York was one of the first states to indict health care providers for no-fault fraud. After a successful test case in New York, federal prosecutors in other no-fault jurisdictions are taking note. A survey of litigation in nine no-fault states conducted by Chapman Law Group has shown a steady increase in no-fault fraud prosecutions.

In addition to federal prosecutions, auto insurance companies began filing civil RICO claims against providers and clinics who bill no-fault insurance companies alleging fraud. Recent suits by auto insurance companies — including Allstate and State Farm — have alleged that clinics employ drivers and recruiters to phone auto accident victims, pick them up, then take them to appointments where their ailments are allegedly exaggerated and unnecessary services are performed.

The insurance companies allege that claims for services were fraudulent, unnecessary, and the result of illegal kickbacks paid to the patients and “marketers.”

In order to be eligible to receive reimbursement from an insurance company under a no-fault insurance policy, a medical service must be reasonable medically necessary. Physicians who are employed in a practice that primarily bills no-fault insurance companies are sure to face increased scrutiny by insurance companies and, now, state and federal prosecutors.

While many believe that no-fault fraud is not related to a federal health care program and, thus, not within the reach of federal prosecutors, this is incorrect. In fact, no-fault fraud arguably implicates a host of federal and state statutes for which a provider may face heavy fines and jail time, including:

• • Healthcare Fraud 18 U.S.C. 1347 
  • Healthcare False Statement 18 U.S.C. 1035
  • Racketeering (RICO) 18 U.S.C. 96
  • Wire Fraud 18 U.S.C. 1037